The dollar index (DXY00) Friday rose by +0.21%. The dollar rose moderately on Friday due to weakness in the euro. EUR/USD is under pressure ahead of German elections this weekend. The dollar also found support on Friday’s sell-off in stocks, which boosted liquidity demand for the dollar.
The dollar fell back from its best level Friday after the University of Michigan US Feb consumer sentiment index was revised lower to a 15-month low, and after Jan existing home sales fell more than expected.
The US Feb S&P Global manufacturing PMI rose +0.4 to an 8-month high of 51.6, stronger than expectations of 51.4. However, the Feb S&P Global services PMI unexpectedly fell -3.2 to 49.7, weaker than expectations of an increase to 53.0 and the steepest pace of contraction in 2 years.
The University of Michigan US Feb consumer sentiment index was revised lower by -3.1 to a 15-month low of 64.7, weaker than expectations of no change at 67.8.
The University of Michigan US Feb 1-year inflation expectations remained unchanged at 4.3%, right on expectations. However, the Feb 5-10 year inflation expectations unexpectedly accelerated to a 29-year high of 3.5%, higher than expectations of no change at 3.3%.
US Jan existing home sales fell -4.9% m/m to 4.08 million, weaker than expectations of -2.6% to 4.13 million.
The markets are discounting the chances at 2% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Friday fell by -0.37%. Friday’s mixed Eurozone Feb PMI reports weighed on the euro. Also, long liquidation and position squaring ahead of Sunday’s snap election in Germany is undercutting the euro. The outcome of Sunday’s election is uncertain, with the possibility of a fragmented parliament and lengthy coalition negotiations that risk a ruling coalition that can’t agree on how to revive the economy or respond to international challenges, which would be bearish for the euro.
The Eurozone Feb S&P manufacturing PMI rose +0.7 to 46.6, stronger than expectations of 47.0. The Feb S&P composite PMI was unchanged at 50.2, weaker than expectations of an increase to 50.5.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) Friday fell by -0.42%. The yen rallied to a 2-1/2 month high against the dollar Friday after Japan Jan consumer prices rose further above 2%, a hawkish factor for BOJ policy. The strength in the Japan Jan CPI report pushed the 10-year JGB bond yield to a 15-year high of 1.466%, strengthening the yen’s interest rate differentials. Gains in the yen accelerated on Friday as T-note yields trended lower.
The yen gave up its gains and turned lower briefly in the overnight session after BOJ Governor Ueda warned that the BOJ would boost its purchases of government bonds if long-term bond yields rose too quickly.
Japan Jan national CPI rose +4.0% y/y, right on expectations and the fastest increase in 2 years. Jan national CPI ex-fresh food and energy rose +2.5% y/y, which is right on expectations and the fastest increase in 10 months.
The Japan Feb Jibun Bank manufacturing PMI rose +0.2 to 48.9.
BOJ Governor Ueda said, “Moves in bond yields fluctuate to a certain degree; however, we will purchase government bonds nimbly to foster the stable formation of yields in exceptional cases where long-term yields rise sharply.”
April gold (GCJ25) Friday closed down -2.90 (-0.10%), and March silver (SIH25) closed down -0.474 (-1.42%). Precious metals on Friday posted moderate losses. Friday’s stronger dollar weighed on precious metals prices. Gold was also pressured on negative carryover from Thursday when Treasury Secretary Bessent dampened speculation that the US government might devalue its bullion holdings when he said it’s “not what I had in mind” when discussing plans for a sovereign wealth fund.
Losses in precious metals Friday were limited by comments from BOJ Governor Ueda, who sparked demand for precious metals as a store of value when he said the BOJ would boost QE if long-term bond yields rose too quickly. Also, fund buying of gold supports prices as long gold positions in ETFs rose to a 13-month high Thursday. In addition, geopolitical tensions and concerns over President Trump’s trade and geopolitical agenda are boosting safe-haven demand for precious metals.
